Consumer sentiment deteriorated sharply in October. At minus 40, SECO's climate indicator was down some 13 points versus its July mark and well below the market consensus. This was its steepest decline since July last year and its weakest level since last October. It was also nearly 34 points short of its long-run average.

The slide reflected declines in most components. The economic outlook (minus 37 after minus 7) fell steeply, as did both the past financial situation (minus 51 after minus 38) and the expected financial situation (minus 38 after minus 25). Somewhat surprisingly, buying intentions (minus 34 after minus 38) were a little firmer, but remained well down on their historic norm (minus 8). Elsewhere, expected unemployment (32 after 6) saw its highest level in a year as did expected prices (93 after 80).

Overall, the latest results suggest that consumers have become much more cautious. The loosening in labour market conditions is clearly having a negative impact on job security and the upturn in inflation expectations could further hurt demand. The latter factor may also trouble the SNB despite the recent run of sub-2 percent CPI reports. In any event, the Swiss RPI now stands at minus 14 and the RPI-P at minus 5. Overall economic activity continues to underperform modestly and mainly due to the unexpected softness of prices.

The climate indicator is seen gaining 4 points to minus 23.

The State Secretariat for Economic Affairs (SECO) compiles a quarterly survey of consumer attitudes on present and expected economic and financial conditions. The survey covers around 1,200 Swiss households and results are synthesised into a single summary consumer climate index that attempts to measure consumer sentiment.

The pattern in consumer attitudes and spending is often a major influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. Consumer spending accounts for a major portion of the Swiss economy, so investors want to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. An increasing important element of the survey is the question concerning current buying intentions.